- THE FIRST SHOT:
For most of January, I was very critical of the price action in the sense that it was not providing two-way action allowing for pullbacks, for traders to try to get value entries.
It was a little surprising to a lot of people that given the criticism that was leveled at the FX market that at the end of January the PREMIUM SERVICE pip total was 1,478 pips of profit. My second-best January so far only beaten by that achieved in 2015.
How did this pip performance come about?
Basically, I tried my best whenever possible to avoid the USD. I tried with limited success to trade JPY cross rates, but most of the time they promised a lot but gave nothing but disappointment in the end. It was the EUR and GBP cross rates that despite liquidity issues at times gave a greater consistency. As simple as that.
It gives a springboard for the year.
The only negatives that I have taken from the month was that the profit to loss trade ratio was 69% / 31% which is a little below my 75% / 25% objective and that my new trade style, MOMENTUM TRADES recorded a pip loss in the month of 202 pips, which was a little frustrating. It all went pear shaped in the last 48 hours of the month.
This month two days old and the total pips for two days stands at 530 pips.
- MARKET OVERVIEW – MY THOUGHTS:
ONE WAY MARKETS and LOW LIQUIDITY
When I was deciding what to write about this week, I thought that most of the economic reports, newspaper columns and social networks would be filled with articles and commentaries about the U.S. Equity sell off and the movement in U.S. Bond yields.
I decided to run with something that I wanted to use basically from the start of December when all of the following really started to resonate with me.
This coming week, we have an action-packed diary of “FRONT PAGE” economic data releases. Sure, last week had NFP, I tried a couple of trades last week, but I rarely trade NFP anymore, I think it's a mug’s game, just my opinion. It’s all hype, a big fuss and at times the moves exaggerated so much should you fall foul of a false move or knee jerk reaction by the markets, all it does is ruin your weekend.
It’s totally not my style to trade in anyway aggressively on a Friday, but more often than not after the LONDON FIX after NFP, most times we see a directional market that will hangover into Asian trading at the start of the following week. Whether the moves run through the first weekly trading session in Europe is debatable, as more often than not the European traders love to reverse the direction of the initial Asian session.
However, should you live in Asia or Australia, New Zealand…Happy Days!
The caveat I would add at the moment is that we have a sell the dollar one-way market at the moment and the lower liquidity issues in Asia are exacerbating the matter.
The best times to trade Forex is when the European session overlaps with the North American session. To be really focused 8AM to 11:30AM EST.
This means that out of the 24 x 5 selling feature of trading the FX markets the hours of real liquidity are 3.5 hours a day.
To put it another way: -
- 5 days x 24 hours = 120 hours.
- 5 days x 3.5 hours = 17.5 hours
- 14.5% of the total market open time per week.
Now, there are exceptions, when high beta data is being released in Asia, the UK or Australia and New Zealand one can tag on the odd hour here and there but generally speaking at the moment in my opinion no more than 15% of the time available can actually be viewed as good trading conditions, with reasonable two-way price action.
Now, if I were to say, I do not even think that we have achieved this 14.5% good trading conditions of late, why am I still trading and what am I doing and how am, I doing it to keep my head above water?
I have heard many traders using the words untradeable, impossible, unpredictable and basically tough. They are NOT wrong.
The FX market is no longer the USD 3-4 Billion a day market that many FX Brokers will have you believe. On good days it may reach USD 3 Billion, but the real numbers which are a pain in the arse to try to establish are I am being advised closer to USD 2.5 Billion per day and the truth probably lies between USD2 & USD2.5 Billion.
It makes sense, many of the big banks have lost fortunes trading FX despite their positions of influence. As the big banks pull out or reduce active operations the liquidity lowers.
Where would this lower liquidity be felt more. Obviously Asia, which has always had liquidity issues ever since I started trading FX back in 2007.
Europe and the Americas are not excused from this reduction but as there are more market participants the effects are not as visible.
So, what am I doing, what have I changed?
I have tried to adapt once again. My TRADE PLAN has generally remained unaltered from 2010, following the GFC. Fundamentally nothing much has changed. What has changed though is my approach to shorter timespan trades.
The EUR/CHF peg removal was a watershed day in FX. Brokers lost money, clients lost money, I myself lost over USD$10,000. Every time I look at a GBP/CHF chart I swear at the little fecker! “THE PEG” day, January 15th, 2015, was a wake-up call. It hardened me as a trader. My trading improved as a result. It was “SCOTT versus THE WORLD” as far as I was concerned. I tightened up my trading parameters. I had a great pips tally in January 2015 despite the PEG removal, it was my record January since starting the PREMIUM SERVICE.
I have subscribers dotted all over the globe. I trade at different times, all zones, but my focus is as written already when Europe and the Americas trade side by side. It has to be.
To facilitate better adaptability to trading and to achieve longevity in trading, should be every traders goal. The preservation of capital is paramount.
To cope with increased volatility, I introduced very successfully POSITION trades. Two years in, they are still NOT perfect. They make pips, good pips but I am Not able to let them run as far as I want them to because of the type of markets we are trading inside.
I re-defined RADAR and FLASH trades, this is a work in progress.
This year I added MOMENTUM trades, which, I hope will be welcomed by Asian, Australian and New Zealand traders as these are intended to be mostly focused on opportunist trades around the daily closing candles. Again, this is work in progress, I have only just completed the first 30 days of this trade style. It has been a bumpy start and I have been more liberal than maybe I should have been with limits and stops. I am hoping that these trades will operate in the Asian sessions even with lower liquidity levels on the basis that I am hoping that MOMENTUM will help produce my desired results. Time will tell.
So, to compete with one-way markets and lower liquidity, you have to be a bit savvier. In my opinion, both trading times and your trading style approaches need to be reviewed.
This however, does NOT give answers on how to trade in a news driven environment.
A couple of weeks ago the economic calendar was really thin. We were left at the mercy of TRUMP and his TWITTER FEED. TRUMP controlled the message, Fibonacci levels, chart patterns, candlestick formations and Pivot Points meant nothing. In this type of market environment, it was completely one-way, no pullbacks, I was mostly sidelined. If you were in a trade, you could run with it, but as soon as you took profits it was a risk getting back in as the markets were over stretched and it felt that a snap back was on the cards. I am still waiting for the snapback to happen!
I talked about FOMO in FX last week. (Fear of Missing out)
Personally, I feel that we are slowly but surely moving towards a FX/Equities/Bonds crisis with each passing day. It’s all about what will be the catalyst to set the ball rolling, what will be the start of the DOMINO EFFECT.
Correlations are off, and correlations do matter. Last week I mentioned the JPY and I still believe that the JPY will be front and centre when the move starts. Whether it be yields, stocks or the DXY. Bonds, Yields and equities all usually correlated with the USD/JPY. They are NOT at the moment.
We have watched the start of a sell-off in equities last week; last Friday we saw, all three U.S. markets lower.
- DOW: - 2.57%
- S&P: - 2.15%
- NASDAQ: - 1.96%
These moves were on the back of some smaller negative moves earlier in the week. A sell off may gather a pace this week, it may not. If, we see a market capitulation, it will be drastic as we have been so one-sided for so long.
We really have to be careful at the moment. The FOMO approach could lead to a broker account being limited out, if you are not managing your RISK properly.
In my view, without sounding like a DRAMA QUEEN, jumping on board with trades without a plan or strategic entry is just gambling.
It has been a pure one-way market for so long, and with experience I know that the snap back could happen at any time and when it does it will be vicious, screen time has taught me this lesson. One requires patience.
Something has got to give…
This market is very much FEAR and GREED driven at the moment.
- USD SUPPORT and RESISTANCE with my BIAS:
- THE PREMIUM SERVICE TRADING SUMMARY:
4.1. PREMIUM SERVICE PERFORMANCE YEAR TO DATE:
(Incorporating the last 5 PREMIUM SERVICE TRADES)
4.2. PREMIUM SERVICE PERFORMANCE: - JANUARY 2018
The spreadsheet below shows the income that was generated from single lot trades.
As you can see subscribers who have paid for either a 6 or 12 month subscription who trade either single MINI or STANDARD lots have had their subscription costs covered already.
If you cannot afford the initial outlay of CAD$800 or CAD$1,250 the MONTHLY ROLLOVER subscription option of CAD$150.00 per month offers real more affordable subscription option. It has a low risk start in the sense that the first 10 days cost just CAD$10.00.
- PREMIUM SERVICE SUBSCRIBERS:
(This section is for PREMIUM SUBSCRIBERS ONLY)
5.1. TRADING REVIEW:
5.2. SENTIMENT, FUNDAMENTAL & MACRO THOUGHTS:
5.3. THE WEEK AHEAD:
5.3.1. ECONOMIC DATA RELEASES THAT INTEREST ME:
5.3.2. MY KEY EVENTS ON THIS WEEK’S CALENDAR:
5.3.3. HOW I WILL APPROACH and TRADE THE MARKET THIS WEEK:
5.3.4. MY “MACRO” TRADING PLAN FOR THE WEEK AHEAD:
5.4 SUMMARY - LONG TERM CORE TRADES:
5.5. CURRENT LIVE TRADES & LIMIT ORDERS:
5.5.1. CURRENT LIVE TRADES:
5.5.2. CURRENT LIMIT ORDER TRADES:
5.6. FX BROKER NEWS and MARKET FEEDBACK:
- THE FINAL SHOT:
Nothing more to add here, I have said enough except,
Always remember longevity in Forex trading can only be achieved through trading with good RISK and MONEY MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility.
The Pip Accumulator
BLOG VERSION: #268 FREE NEWSLETTER
DATE: 3rd February 2018